‘Giant Unlock’ Causes Optimism’s OP Token Value to Drop

The law of supply and demand is a fairly simple concept: Increasing supply in relation to demand will usually cause prices to fall.

Anyone who understands this basic economic law shouldn’t be surprised that the unlocking of tokens — roughly equivalent to 114% of Optimism‘s previous circulating supply of its OP token — correlated with a steady decline of nearly 50% in the token’s value over recent weeks. 

Despite this market negativity, the convergence of a number of developments that are building on the OP stack signals a positive outlook for the ambitious Ethereum layer-2 solution.

The “giant unlock” of supply caused Optimism’s OP token to “dump roughly 17% over the past few days,” says Ryan West, a Blockworks Research analyst, on the 0xResearch podcast.

And it’s only the beginning, he says, with tokens continuing to unlock half a percent of the total supply every month until some time in 2027.

It was a “pretty bad trading week for OP,” he observes.

The analyst wonders if a number of upcoming events such as the impending Bedrock upgrade, which enables Ethereum to “eventually become a Superchain” will be enough to maintain positivity. 

“Is this enough to cause a bounce after the unlock,” West asks, “or will the overhangs over time also be a little too much, as liquidity is pretty dry at the moment?”

Building on Optimism

The Bedrock upgrade enables chains to build on top of the OP stack and create a single unified network that incorporates “bridging, governance, upgrades and cross-chain communication.” The mainnet upgrade is scheduled to take place on June 6.

Other upcoming projects building on the OP stack, such as Worldcoin and Coinbase’s Base testnet, also appear to be nicely timed to maintain positive vibes, despite the scheduled release of tokens. 

Worldcoin will provide the ability to verify “humanness” via a “decentralized, open-source and privacy-preserving” protocol, according to co-founder, Alex Blania. 

Coinbase, the largest American crypto exchange, is building the layer-2 chain, Base on Optimism. It aims to offer a “secure, low-cost, developer-friendly way for anyone, anywhere, to build decentralized apps or ‘dapps’ onchain,” according to the company website.

The market is inefficient

Blockworks research analyst Ren Yu Kong notes that historically, teams have often deliberately timed protocol upgrades to coincide with token unlocks in order to mitigate suppressive effects on the market. 

“In crypto, these large unlocks,” Kong says, “it means everyone can dump early. But I feel like that’s mostly a function of the market not being efficient and pricing everything too highly.”

Research analyst Sam Martin adds that he expects that with the growth of projects attached to Optimism, conditions may “shape out” more like the Cosmos ecosystem, where “the hub isn’t necessarily the central value accrual token.”

Token value could hinge on whether the OP stack chain returns revenue from the sequencer back to public goods funding, Martin says. 

“That is a pretty enticing flywheel right there if it becomes a standard.”

---

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.